With careful planning, $2.5 million can fund a comfortable retirement starting at age 60. But as with any major life transition, retirees must weigh a complex set of variables from taxes to healthcare to ensure their nest egg lasts decades. Though everyone’s situation differs, this level of savings can provide most the flexibility to retire if desired, especially if paired with even modest Social Security income starting a few years later.
Do you have questions about retirement planning? Speak with a financial advisor today.
The Fundamentals of Retirement Planning
Deciding if you have enough saved to retire hinges on estimating future costs and income streams over an expected lifetime. At its simplest, this involves projecting how much income you’ll have from various sources and preparing post-retirement budgets for expenses.
To make an optimal decision, especially if you’re considering retiring earlier than typical, you also have to account for age-related factors. These include healthcare expenses before Medicare eligibility at age 65 and penalties for most retirement account withdrawals before age 59.5.
Social Security timing strategies are also important. These are based on personal circ*mstances and call for balancing tradeoffs between maximizing monthly benefit amounts and starting benefits earlier. Required minimum distribution (RMD) rules that go into effect after age 73 represent another significant consideration.
Identifying an appropriate withdrawal rate that maintains principal is also key. This will vary depending on your portfolio strategy, asset allocation and investment performance. However, it’s often suggested to use a rate between 4% and 6%, depending on where you look.
Examples of Retiring at 60 with $2.5 Million
Rather than trying to figure out your personal retirement income and expenses in detail, you can use income replacement. For a 60-year-old earning $100,000 annually, the target budget number for income could be, say, $70,000 per year. This is using a 70% income replacement guideline.
The 4% withdrawal rate is another guideline that assumes withdrawing that percentage of a portfolio annually, adjusted for inflation, will allow a nest egg to last as long as a typical retirement. Withdrawing 4% annually from a $2.5 million portfolio would generate $100,000 in retirement income. This covers the $70,000 income replacement target, with a nice cushion of $30,000 per year.
For most people, savings represent only one source of potential income in retirement. Additionally, this individual could start taking Social Security benefits as early as age 62. Alternatively, they could wait to claim their benefits until reaching full retirement age at 67, or even longer at 70. This would qualify them for higher monthly benefit amounts, with the tradeoff of starting them later.
Taxes represent another key component of this decision. While completely avoiding taxes is not possible, there are moves you can make to manage or minimize taxes. For instance, converting some pre-tax savings to a Roth IRA early enough before retirement would avoid tax bills later at the cost of paying more taxes now. An advisor can run projections to inform conversion pacing and amounts.
Additional variables that could impact a retirement decision include healthcare costs, investment performance and inflation. While these variables can’t be forecast with certainty, making educated guesses about their future values can help you plan effectively.
Making the Call
Ultimately, $2.5 million can reasonably support retiring at 60 if assumptions around withdrawal rates, taxes, healthcare costs and other factors hold up. Being flexible about expenses and having some income options as a potential backup provide wiggle room in case things don’t work out exactly as expected. Working with a financial advisor to stress test plan viability across various market and lifespan scenarios is prudent to ensure savings stand the test of time.
Despite your best efforts at planning, some uncertainties and risks remain when deciding if and when to retire. Extended periods of high inflation could erode purchasing power more quickly, or health issues could also drive expenses higher, especially in early retirement before Medicare eligibility at 65. To counter fiscal risks, retirees should build in some margin like having income streams beyond portfolio withdrawals.
Bottom Line
While $2.5 million doesn’t guarantee a secure retirement at 60, it does provide more options than some retirees might have. Weighing complex projections around taxes, healthcare costs, withdrawal rates and Social Security tradeoffs can inform next moves. As no plan survives first contact with reality perfectly, working with an advisor and retaining some flexibility helps retirees call audibles while protecting savings.
Retirement Planning Tips
- A financial advisor can help stress test your retirement plan across lifespan, market and tax scenarios to assess feasibility. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- While you can’t know exactly what will happen in retirement, SmartAsset’s retirement calculator can help you produce a reasonable estimate of who well prepared you are.
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FAQs
Ultimately, $2.5 million can reasonably support retiring at 60 if assumptions around withdrawal rates, taxes, healthcare costs and other factors hold up. Being flexible about expenses and having some income options as a potential backup provide wiggle room in case things don't work out exactly as expected.
Can I retire at 60 with $2.5 million dollars? ›
A retirement nest egg of $2.5 million can likely produce an annual income of $100,000 for as long as you are likely to live. This is using the 4% withdrawal rate that many advisors consider safe. After starting with the first withdrawal of 4% of the total, the annual withdrawal will adjust for inflation.
How long can I live off of 2.5 million dollars? ›
A nest egg of $2.5 million could generate $100,000 in income per year if you tap your accounts at the widely cited 4% sustainable rate of withdrawal. This rule forecasts that withdrawing that percentage from your accounts each year will allow a nest egg to last at least 30 years.
How much do you need to retire comfortably at 60? ›
To help you stay on track, we suggest these age-based milestones: Aim to save at least 1x your income by age 30, 3x by 40, 6x by 50, and 8x by 60. Your personal savings goal may be different based on various factors including 2 key ones described below.
What percentage of retirees have $2 million dollars? ›
According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
What percentage of retirees have $3 million dollars? ›
Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.
How to retire at 60 with no money? ›
If you retire with no money, you'll have to consider ways to create income to pay your living expenses. That might include applying for Social Security retirement benefits, getting a reverse mortgage if you own a home, or starting a side hustle or part-time job to generate a steady paycheck.
Is 2.5 million net worth considered rich? ›
In the U.S. overall, the survey says it takes a net worth of $2.2 million to be considered wealthy, up from $1.9 million in 2021. Up 15.8% is a significant increase, but it makes sense due to high inflation and a rise in home prices.
How much money does the average 65 year old retire with? ›
Average retirement savings balance by age
| Age group | Average retirement savings balance amount |
|---|
| 45-54 | $313,220. |
| 55-64 | $537,560. |
| 65-74 | $609,230. |
| 75 and older | $462,4100. |
2 more rowsMay 7, 2024
Summary. $2 million is far above the average retirement savings in the US. $2 million should afford you to enjoy a comfortable and happy retirement. If you choose to retire at 50, a retirement savings fund of $2 million would provide you with $50,000 annually.
However, on the plus side 60-year-olds can withdraw from retirement accounts without penalty. Early retirees may also benefit from lower healthcare costs, improved ability to work part-time and a longer and more enjoyable retirement. A financial advisor can help you plan for retirement at any age.
What's a good monthly retirement income? ›
Average Monthly Retirement Income
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
What is the average retirement account balance at 60? ›
The average 401(k) balance by age
| Age | Average 401(k) | Median 401(k) |
|---|
| 50s | $558,740 | $247,338 |
| 60s | $555,621 | $209,382 |
| 70s | $417,379 | $103,219 |
| 80s | $385,783 | $78,534 |
3 more rowsRetirement Income From $2.5 Million
A retirement nest egg of $2.5 million can likely produce an annual income of $100,000 for as long as you are likely to live. This is using the 4% withdrawal rate that many advisors consider safe.
What is considered wealthy in retirement? ›
To be considered wealthy at age 65 or older, you need a household net worth of $3.2 million, according to finance expert Geoffrey Schmidt, CPA, who used data from the 2019 Survey of Consumer Finances (SCF) to determine the household net worth needed at age 65 or older to determine the various percentiles of wealth in ...
Is 2.5 million enough to retire at 60? ›
Ultimately, $2.5 million can reasonably support retiring at 60 if assumptions around withdrawal rates, taxes, healthcare costs and other factors hold up. Being flexible about expenses and having some income options as a potential backup provide wiggle room in case things don't work out exactly as expected.
What is the new rule of thumb for $3 million retirement? ›
He added that, according to this rule, the amount you withdraw should be considered safe enough to sustain your retirement for 30 years. “For example, if you retire with $3 million saved, you would start withdrawing $120,000 in the first year and adjust this amount for inflation thereafter,” he said.
What is the best retirement portfolio for a 60 year old? ›
At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).
Is $3 million a lot of money? ›
To some people, $3 million will sound like a lot. You probably think $3 million is enough to retire if you're among that crowd. But retiring with $3 million at 65 can last depending on your longevity, lifestyle and other factors. Let's break down what you need to consider when determining how much you can afford.
